The real causes of the bubble were rapid changes in the mortgage lending industry, rating agencies that didn't account for those changes, combined with a lack of regulatory oversight. 1/
As an example, the lenders used to use the three Cs: Credit, Capacity, and Collateral. Instead of using the three Cs, the private lenders innovated and just used FICO scores, and then eventually little or nothing to underwrite the loan. There were other "innovative changes" 2/
The rating agencies models were based on prior lending methods, and weren't adjusted sufficiently to account for the new (non-existent) underwriting standards. This meant the private label MBS was rated to highly. 3/
The regulators turned a blind eye to the loose lending and excessive concentrations. I was talking with field regulators in 2005 and 2006, and they were all terrified. I was told the appointees at the top of the agencies were blocking any effort to tighten standards. 4/
Those who blame the CRA or Fannie and Freddie don't understand what happened. 5/
